Regeneron Reports Third Quarter 2014 Financial and Operating Results

TARRYTOWN, N.Y., Nov. 4, 2014 -- Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN) today announced financial results for the third quarter of 2014 and provided an update on development programs.

 

"We believe EYLEA is positioned for continued strong growth given recent approvals in macular edema following retinal vein occlusion and diabetic macular edema (DME) as well as top-line results of the NIH-sponsored DRCR Protocol T DME study, in which EYLEA showed significant gains in visual acuity compared to both alternative anti-VEGF therapies," said Leonard S. Schleifer, M.D., Ph.D., President and Chief Executive Officer of Regeneron.  "Regeneron also continues to advance an innovative pipeline of therapies with unique potential to help patients with serious needs.  Over the last few months, we reported strong Phase 3 results with alirocumab in hypercholesterolemia, positive proof-of-concept data in a third allergic disease for dupilumab, and advanced two additional programs into human clinical development for cancer and eye disease."

Business Highlights

EYLEA® (aflibercept) Injection for Intravitreal Injection

• In the third quarter of 2014, net sales of EYLEA in the United States increased 23% to $445 million from $363 million in the third quarter of 2013.  There were no significant changes in distributor inventory levels during the quarter.
• Bayer HealthCare commercializes EYLEA outside the United States.  In the third quarter of 2014, net sales of EYLEA outside of the United States(1) were $277 million, compared to $125 million in the third quarter of 2013.  In the third quarter of 2014, Regeneron recognized $85 million from its share of net profit from EYLEA sales outside the United States (after repayment of $14 million in development expenses), compared to $32 million in the third quarter of 2013 (after repayment of $15 million in development expenses). 
• In July 2014, the FDA approved EYLEA for the treatment of DME.
• In August 2014, the European Commission approved EYLEA for the treatment of visual impairment due to DME.
• In September 2014, the Japanese Ministry of Health, Labour and Welfare approved EYLEA for myopic choroidal neovascularization (myopic CNV).
• In September 2014, based on data from the VIVID-DME and VISTA-DME trials, the FDA granted EYLEA Breakthrough Therapy designation for the treatment of diabetic retinopathy in patients with DME.
• In October 2014, the FDA approved EYLEA for the treatment of macular edema following retinal vein occlusion (RVO), which includes macular edema following branch retinal vein occlusion (BRVO) in addition to the previously-approved indication of macular edema following central retinal vein occlusion (CRVO).  Bayer HealthCare has also submitted regulatory applications seeking marketing authorization in the EU and Japan for EYLEA for the treatment of macular edema following BRVO.
• In October 2014, the Company announced that in the National Institutes of Health (NIH) sponsored, Diabetic Retinopathy Clinical Research Network comparative effectiveness study in patients with DME, EYLEA demonstrated a significantly greater improvement in mean change in best-corrected visual acuity (BCVA) from baseline at 52 weeks compared to both bevacizumab (Avastin®) and ranibizumab injection (Lucentis®), the primary endpoint of the study.  The median number of injections using the protocol-specified retreatment regimen was one fewer in patients treated with EYLEA compared to bevacizumab and ranibizumab.  Fewer patients in the EYLEA group received criteria-based macular laser treatments than those treated with bevacizumab and ranibizumab.  The rates of most ocular and systemic adverse events were similar across the three study groups.  The rates of arterial thromboembolic events as defined by the Anti-Platelet Trialists' Collaboration in the trial were 2 percent in the EYLEA group, 4 percent in the bevacizumab group and 5 percent in the ranibizumab group.  There were more overall cardiovascular events in the ranibizumab group, compared to the EYLEA group and the bevacizumab group (nominal p less than 0.01); this included more cardiac events and cerebrovascular events in the ranibizumab group.  The independent, NIH-sponsored study was designed to determine if one of three different anti-VEGF therapies is superior to the others for the treatment of DME.

Pipeline Progress

Regeneron has sixteen fully human monoclonal antibodies generated using the Company's VelocImmune® technology in clinical development, including six in collaboration with Sanofi.  Highlights from the late-stage antibody pipeline include:

Alirocumab, the Company's antibody targeting PCSK9 (proprotein convertase subtilisin/kexin type 9) to lower LDL-cholesterol (LDL-C), is currently being evaluated in the global Phase 3 ODYSSEY program.  In July 2014, the Company and Sanofi reported positive, top-line results from nine Phase 3 ODYSSEY studies.  Data from the nine studies (ODYSSEY LONG TERM, FH I, FH II, HIGH FH, COMBO I, COMBO II, OPTIONS I, OPTIONS II, and ALTERNATIVE), along with the previously announced positive data from the ODYSSEY MONO study, will form the basis for the Company's initial global regulatory filings.  The Phase 3 ODYSSEY program remains ongoing.  This includes three additional studies, CHOICE I, CHOICE II, and OUTCOMES, which are expected to report primary endpoints in 2015 and beyond.

In July 2014, the Company and Sanofi also announced that the Company had purchased an FDA rare pediatric disease priority review voucher from a third party, which the companies intend to use in connection with the planned BLA submission for alirocumab.  The priority review voucher entitles the holder to designate a human drug application for priority review, which provides for an expedited 6-month review from the filing date instead of the standard 10-month review.

In August 2014, detailed positive results from four Phase 3 ODYSSEY trials of alirocumab in patients with hypercholesterolemia were presented at the ESC Congress 2014 in Barcelona, Spain. This included the ODYSSEY LONG TERM, COMBO II, FH I, and FH II studies.  On the primary efficacy endpoint of the LONG TERM trial, at 24 weeks, there was a 61 percent reduction from baseline in LDL-C levels in the alirocumab group as compared to a 1 percent increase in the placebo group (62 percent reduction in alirocumab group compared to placebo), p less than 0.0001.  Of the alirocumab patients, 81 percent achieved their pre-specified LDL-C goal (either 70 milligrams/deciliter [mg/dL] or 100 mg/dL depending on patients' baseline cardiovascular (CV) risk) compared to 9 percent for placebo (p less than 0.0001).  The most common adverse events (greater than or equal to 5 percent of patients) were nasopharyngitis (13 percent alirocumab; 13 percent placebo), upper respiratory tract infection (7 percent alirocumab; 8 percent placebo), and injection site reactions (6 percent alirocumab; 4 percent placebo).  In a post hoc safety analysis, there was a lower rate of adjudicated major CV events (cardiac death, myocardial infarction, stroke, and unstable angina requiring hospitalization) in the alirocumab group compared to placebo (1.4 percent compared to 3.0 percent, nominal p-value less than 0.01).  These CV events comprise the composite primary endpoint of the ongoing 18,000-patient ODYSSEY OUTCOMES trial, which is prospectively evaluating the potential of alirocumab to demonstrate CV benefit.

The Company and Sanofi expect to submit U.S. and EU regulatory submissions for alirocumab before the end of 2014.

Sarilumab, the Company's antibody targeting IL-6R for rheumatoid arthritis, is currently continuing enrollment in the global Phase 3 SARIL-RA program.  The Phase 3 MONARCH study, which will be a head-to-head monotherapy study comparing sarilumab against adalimumab, is expected to be initiated by the end of 2014.

Dupilumab, the Company's antibody that blocks signaling of IL-4 and IL-13, is currently being studied in atopic dermatitis, asthma, and chronic sinusitis with nasal polyps.  In July 2014, positive results from four Phase 1 and Phase 2 studies of dupilumab in adults with moderate-to-severe atopic dermatitis were published in the New England Journal of Medicine.  In addition, positive results from the Phase 2b trial of dupilumab in atopic dermatitis were reported in July 2014 and were presented in October 2014 at the European Academy of Dermatology and Venereology.  In October 2014, the LIBERTY AD CHRONOS Phase 3 study of dupilumab in atopic dermatitis was initiated and is currently enrolling patients.  The Phase 3 study is part of a clinical program which will consist of at least five trials of patients with moderate-to-severe atopic dermatitis at sites worldwide.

A Phase 2b trial of dupilumab in asthma is fully enrolled and the Company and Sanofi expect to report data by the end of the year.

In September 2014, positive results from a Phase 2a study of dupilumab in patients with moderate-to-severe chronic sinusitis with nasal polyps were reported.

REGN1979, a fully human bispecific antibody against both CD20 and CD3, recently had a Phase 1 study in oncology initiated.

REGN910-3, a combination product comprised of an antibody to Ang2 co-formulated with EYLEA in a single injection, recently had a Phase 1 study in ophthalmology initiated.

Third Quarter 2014 Financial Results

Product Revenues: Net product sales were $449 million in the third quarter of 2014, compared to $367 million in the third quarter of 2013.  EYLEA net product sales in the United States were $445 million in the third quarter of 2014, compared to $363 million in the third quarter of 2013. 

Total Revenues: Total revenues increased by 22% to $726 million in the third quarter of 2014, compared to $597 million in the third quarter of 2013.  Total revenues include collaboration revenues of $269 million in the third quarter of 2014, compared to $223 million in the third quarter of 2013.  Collaboration revenues increased primarily due to an increase in the Company's net profit from commercialization of EYLEA outside the United States.  Collaboration revenues in the third quarter of 2014 also included two $15 millionsales milestones earned from Bayer HealthCare.  Collaboration revenues in the third quarter of 2013 included $45 million of milestone payments earned from Bayer HealthCare, comprised of a $15 million development milestone and two $15 million sales milestones.

Refer to Table 4 for a summary of collaboration revenue.

Research and Development (R&D) Expenses: GAAP R&D expenses were $338 million in the third quarter of 2014, compared to $224 million in the third quarter of 2013.  The increase was principally due to (i) the Company's 50% share, or $34 million, of the cost of purchasing a FDA priority review voucher in the third quarter of 2014 as described above, (ii) cost-sharing of development expenses with Sanofi in connection with the Company's obligation to fund 20% of Phase 3 alirocumab and sarilumab costs, which commenced during the fourth quarter of 2013, and (iii) higher headcount to support the Company's increased R&D activities.  In addition, in the third quarter of 2014, R&D-related non-cash share-based compensation expense was $46 million, compared to $28 million in the third quarter of 2013.

Selling, General, and Administrative (SG&A) Expenses: GAAP SG&A expenses were $150 million in the third quarter of 2014, compared to $98 million in the third quarter of 2013.  The increase was primarily due to a $41 million incremental charge related to the Branded Prescription Drug Fee, which was recorded in the third quarter of 2014, based on final regulations issued by the Internal Revenue Service (IRS) in July 2014.  In addition, SG&A expenses increased due to higher non-cash compensation expense, higher headcount and related costs, and higher legal costs resulting primarily from patent enforcement, partly offset by lower contributions to a not-for-profit organization that assists patients with chronic disease conditions.  In the third quarter of 2014, SG&A-related non-cash share-based compensation expense was $27 million, compared to $17 million in the third quarter of 2013.   

Income Tax Expense: GAAP income tax expense was $96 million in the third quarter of 2014, compared to $84 million in the third quarter of 2013.  The effective tax rate was 54.7% for third quarter of 2014, compared to 37.4% for the third quarter of 2013.  The effective tax rate for the third quarter of 2014 was negatively impacted by losses incurred in foreign jurisdictions with rates lower than the federal statutory rate, the incremental charge related to the non-tax deductible Branded Prescription Drug Fee, and expiration at the end of 2013 of the federal tax credit for increased research activities.  Due to the amounts of the Company's net operating loss and tax credit carry-forwards available for tax purposes, the Company does not currently pay significant cash income taxes.

Non-GAAP and GAAP Net Income: The Company reported non-GAAP net income of $295 million, or $2.93 per basic share and $2.52per diluted share, in the third quarter of 2014, compared to non-GAAP net income of $277 million, or $2.82 per basic share and $2.40per diluted share, in the third quarter of 2013. 

The Company reported GAAP net income of $80 million, or $0.79 per basic share and $0.70 per diluted share, in the third quarter of 2014, compared to GAAP net income of $141 million, or $1.44 per basic share and $1.25 per diluted share, in the third quarter of 2013.

A reconciliation of the Company's GAAP to non-GAAP results is included in Table 3 of this press release.

Cash and Marketable Securities: At September 30, 2014, cash and marketable securities totaled $1.5 billion, compared to $1.1 billionat December 31, 2013.  In October 2014, the Company received notification that an additional $161 million principal amount of the Company's convertible senior notes was surrendered for conversion, and settlement is anticipated during the fourth quarter of 2014.  The Company elected to settle these conversion obligations through a combination of cash and shares.

2014 Financial Guidance

The Company's updated full year 2014 financial guidance consists of the following components:

 

 

 

Conference Call Information

Regeneron will host a conference call and simultaneous webcast to discuss its third quarter 2014 financial and operating results onTuesday, November 4, 2014, at 8:30 AM.  To access this call, dial (888) 660-6127 (U.S.) or (973) 890-8355 (International).  A link to the webcast may be accessed from the "Events and Presentations" page of Regeneron's website at www.regeneron.com.  A replay of the conference call and webcast will be archived on the Company's website and will be available for 30 days.

About Regeneron Pharmaceuticals, Inc.

Regeneron is a leading science-based biopharmaceutical company based in Tarrytown, New York that discovers, invents, develops, manufactures, and commercializes medicines for the treatment of serious medical conditions.  Regeneron commercializes medicines for eye diseases, colorectal cancer, and a rare inflammatory condition, and has product candidates in development in other areas of high unmet medical need, including hypercholesterolemia, oncology, rheumatoid arthritis, asthma, and atopic dermatitis.  Several Regeneron programs are based on human genetics findings.  For additional information about the Company, please visit www.regeneron.com.

Forward-Looking Statement

This press release includes forward-looking statements that involve risks and uncertainties relating to future events and the future performance of Regeneron Pharmaceuticals, Inc. ("Regeneron"), and actual events or results may differ materially from these forward-looking statements.  Words such as "anticipate," "expect," "intend," "plan," "believe," "seek," "estimate," variations of such words and similar expressions are intended to identify such forward-looking statements, although not all forward-looking statements contain these identifying words.  These statements concern, and these risks and uncertainties include, among others, the nature, timing, and possible success and therapeutic applications of Regeneron's products, product candidates, and research and clinical programs now underway or planned; unforeseen safety issues resulting from the administration of products and product candidates in patients, including serious complications or side effects in connection with the use of Regeneron's product candidates in clinical trials; the likelihood and timing of possible regulatory approval and commercial launch of Regeneron's late-stage product candidates and new indications for marketed products, including without limitation EYLEA for the treatment of various Vascular Endothelial Growth Factor-driven diseases in relevant jurisdictions, alirocumab (including the impact (if any) of the planned use of the U.S. Food and Drug Administration's Rare Pediatric Disease Priority Review Voucher in connection with the anticipated Biologics License Application submission for alirocumab), sarilumab, and dupilumab; ongoing regulatory obligations and oversight impacting Regeneron's research and clinical programs and business, including those relating to patient privacy; determinations by regulatory and administrative governmental authorities which may delay or restrict Regeneron's ability to continue to develop or commercialize Regeneron's products and product candidates; competing drugs and product candidates that may be superior to Regeneron's products and product candidates; uncertainty of market acceptance and commercial success of Regeneron's products and product candidates and the impact of studies (whether conducted by Regeneron or others and whether mandated or voluntary), such as the comparative effectiveness study in patients with DME discussed in this news release, on the commercial success of Regeneron's products and product candidates; the ability of Regeneron to manufacture and manage supply chains for multiple products and product candidates; coverage and reimbursement determinations by third-party payers, including Medicare and Medicaid; unanticipated expenses; the costs of developing, producing, and selling products; the ability of Regeneron to meet any of its sales or other financial projections or guidance and changes to the assumptions underlying those projections or guidance, including without limitation those relating to EYLEA U.S. net product sales, non-GAAP unreimbursed R&D, non-GAAP SG&A, and capital expenditures; the potential for any license or collaboration agreement, including Regeneron's agreements with Sanofi and Bayer HealthCare LLC, to be cancelled or terminated without any further product success; and risks associated with intellectual property of other parties and pending or future litigation relating thereto.  A more complete description of these and other material risks can be found in Regeneron's filings with the U.S. Securities and Exchange Commission, including its Form 10-K for the fiscal year ended December 31, 2013 and its Form 10-Q for the quarterly period ended September 30, 2014.  Any forward-looking statements are made based on management's current beliefs and judgment, and the reader is cautioned not to rely on any forward-looking statements made by Regeneron.  Regeneron does not undertake any obligation to update publicly any forward-looking statement, including without limitation any financial projection or guidance, whether as a result of new information, future events, or otherwise.

This press release and/or the financial results attached to this press release include amounts that are considered "non-GAAP financial measures" under SEC rules.  As required, Regeneron has provided reconciliations of these measures.